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Micro Small and Medium Enterprises (MSME) Promotion Programme
MSME
BMOs SIDBI
MSME Umbrella Programme Brochure
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Creating jobs, driving growth
1 Creating jobs, driving growth
Micro Small and Medium Enterprises (MSME) are India’s largest employer after agriculture
What’s MSME? India’s growth story is dominated by stories of its big firms – the
Tatas, Infosys and Reliance. But beyond these big firms lies a vast
number (around 27 million) of small businesses, officially called by the
government as Micro Small and Medium Enterprises (MSME). They earn a
big chunk of India’s export revenues and employ an estimated 60 million
people at the lower rungs of the economy. They are true job creators.
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There are an estimated 27 million MSME in India
Creating jobs, driving growth
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What’s the problem?
What’s GIZ doing?
Because of the inherent disadvantage of being small, MSME find it
difficult to obtain finance, buy the latest machinery, adopt environmental
and social standards, train personnel etc. At the same time, with
increasing globalisation,, MSME today find themselves competing with
rivals from other Asian countries, notably China. The government has
recognised the problem – the Prime Minister’s Task Force formed in 2010
has recommended measures to be taken in a wide range of areas that
affect MSME.
GIZ is working with the Ministry of MSME and the Small Industries
Development Bank of India (SIDBI) as its main implementation partners
on the ‘MSME Umbrella Programme’ (MSME-UP). The MSME-UP is a
four year project (2010-2014) and is a result of bilateral collaboration
between the Indian and German government. With SIDBI, it is working on
delivering financial and non-financial services to small firms. In order
to improve access to finance for MSME, GIZ also works with commercial
and public sector banks, micro finance institutions, non-banking financial
institutions and associations of banks and micro finance institutions.
With the Ministry, it is working on evaluating and improving programmes
(‘schemes’ as they are known in government) that deliver a wide range of
non-financial services to MSME. To do this, GIZ is sharing information on
international best practice in small business promotion and development
and bringing in German small business experts.
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2No room with a view
In a globalised world, Indian MSME need an enabling environment to remain competitive
Informal EconomyOver 90% of India’s MSME are in the ‘grey’ or informal economy. As they
have no identity, officially they don’t exist and cannot be targeted by
government programmes or finance. For ‘Inclusive Growth’ to happen, what
is needed is creating opportunities for small businesses to participate in
wealth creation. This means creating an enabling environment so that they
can focus on competing in the market and be successful at business.
No room
with a view
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MSME in India are working against the odds with lack of support, little finance and in poor conditions
No room
with a view
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MSMEs in India tend to be grouped into geographical ‘clusters’ with
each cluster specialising in a particular industry, value chain or product,
e.g. the garments cluster in Tiruppur, the sports goods cluster in
Jalandhar, the knitwork and hosiery cluster in Ludhiana and the
auto-ancillary cluster in the NCR region. These clusters tend to be
congested, polluted zones with low health and safety work practices.
The whopping price of land and the long drawn process of land
acquisition compels MSME to keep working in such conditions rather than
starting new clusters.
Most MSME find it difficult to produce collateral while applying for loans.
Most loans offered by banks are on existing security and collateral, not on
projected cash flows which makes it difficult for MSME to obtain credit.
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MSME not only lack access to financial but also to non-financial services.
They often need support in functions such as business plan development,
accounting and marketing. With global supply chains and rising product
standards, small businesses need assistance to meet international
environmental, social or quality standards. Government services cannot
reach out to cover all MSME in India.
MSME units tend to have low awareness of the adverse social and
environmental impact that their business may have. Polluting production
technologies and poor working conditions can harm the communities
where these businesses are located. Complying with social and
environmental standards is increasingly becoming more important
for businesses.
No room
with a view
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3Big foot-biggerfoot print: private sector services for MSME
GIZ is working on building a self-sustaining private sector of MSME business development service providers
GIZ’s approachA central feature of GIZ’s approach to MSME development in India is to
build a market of private service providers that provide support for MSME,
for example in marketing, market access, technology and skill transfer
or other business advice. GIZ aims to strengthen private providers of
these Business Development Services (BDS) in their capacities to deliver
essential services to MSME.
Big foot bigger foot print: private sector service for M
SME
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Jointly with BDS providers and knowledge partners, GIZ identifies, develops and
strengthens commercially viable business models for service delivery to MSME. Creating
a market for BDS complements the publicly funded services for MSME provided by
government and expands the overall “footprint” of these services.
Big foot bigger foot print: private sector service for M
SME
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4One for all:the new agebusiness association
GIZ is strengthening business associations to provide a range of business development services
GIZ’s approachGIZ strengthens the capacities of Business Membership Organizations (BMO)
such as district and cluster level associations and chambers to enable them
to become service providers and leverage public support programmes for the
benefit of their member MSME.
One for all: the new
age business association
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With BMOs, GIZ is strengthening their capacity as service providers to their member MSME
and not just as political lobbying organisations. Internationally, BMOs act as connectors -
linking their member firms to the services they require.
One for all: the new
age business association
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5 Scaling up, scaling down
GIZ is helping deliver credit to the ‘missing middle’
What’s the problem? Micro, small and medium enterprises have differing credit requirements
and sources. A firm with a loan requirement between Rs 50.000-10 lacs
however finds itself in an awkward situation. This loan size is too small
for banks to be interested and too big for a micro-lender to give. (Micro-
lenders give loans to individuals, not to small firms.)
What’s GIZ doing?
GIZ is collaborating with international research institutions to design
products and delivery systems that make it possible for such firms
to be serviced, for instance a loan product with different interest rate
and collateral requirements and with different means of verifying
creditworthiness (based on expected cash flows, not current assets for
instance). GIZ also explores opportunities to apply technological solutions
such as micro-credit cards for MSME.
Scaling up, scaling down
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Reaching out through technology and improving access to credit for MSME
Scaling up, scaling down
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6Less energy more growth
GIZ is helping MSME obtain finance for adopting green technology and environmentally friendly business practices
Less energy more grow
th
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GIZ is bringing climate and environmental concerns to the strategy level
Less energy more grow
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What’s the problem? MSME often use production technology that is old and polluting.
Switching to more energy efficient technology is not only good for
obvious reason but also has the potential of reducing operating costs
(e.g. lower costs of energy, less wear and tear on machines, less heat
generated which in turn lowers expenditure on insulation etc). But these
technologies are expensive and it is difficult to persuade MSME to invest
a large sum today for projected benefits tomorrow. It’s not just about
money either. The MSME would also need help in setting up the new plant
and machinery and in training for employees on how to use and maintain
the machinery. This technical expertise is either expensive or is not
available in the Indian market.
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What’s GIZ doing? GIZ is working with knowledge partners such as Frankfurt School of
Finance and Management to develop financial products and training
packages that enable MSME to quickly access finance to switch to green
technology. This loan product is based on projected reductions in carbon
emission and projected cash flows from the business making it easier
for the MSME to get a loan without pledging collateral (which it may not
have anyway). It has tied up with some of India’s biggest nationalised
banks (SBI, Bank of India among others besides its project partner SIDBI)
to pilot and later roll out these products through their branch networks.
GIZ assists banks in developing and implementing their Sustainability
Strategy as financial actors, and through that strenghten their role as
multipliers for sustainability and responsibility in the business sector.
Less energy more grow
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7Learning from others
GIZ is assisting the government to improve the impact of MSME policies and programmes
GIZ’s approachBy bringing in professional expertise and international best practices, GIZ
is working with the Office of DC MSME of the Ministry of MSME to improve
its programmes in terms of design, delivery and monitoring results.
Learning from others
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GIZ is advising the Indian government to enhance the efficiency, effectiveness and impact of its MSME development programmes
Learning from others
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What’s the problem? Most MSME policies and programmes were originally conceived at a time
when India had a centrally planned economy with heavy government
regulation of the economy. Much has changed since then. Internally,
government intervention in economic activity has changed - moving from
a direct provider of goods and services to a regulator of private sector
production of such goods and services. Externally, integration of markets
and supply chains due to globalisation has increased competition and
accelerated the need for greater efficiency in responding to market
demand. Government policy making in such an environment must
complement the role of the private sector and create an environment
for fair competition so that performance is rewarded.
What’s GIZ doing?
GIZ is bringing in best practices in the design of policy incentives
and their delivery in the form of government schemes. It is helping
the Ministry of Micro Small and Medium Enterprises to assess the
performance and management of its field network of such as tool
rooms and MSME-Development institutes across India. It is bringing in
international small business experts to advise the Ministry on how it
can provide best-in-class services to MSME at par internationally. GIZ
is assisting the ministry to improve the service delivery system through
improving the monitoring of its policies and programmes. A principal
focus of its work relates to how public programmes can be complemented
with MSME services offered by Business Membership Organisations
(BMOs) and Business Development Service Providers (BDS). Overall, the
GIZ through this programme aims to strengthen the efficiency and impact
of the delivery system for support services, thereby improving the service
environment and business climate for MSME.
About GIZ Working efficiently, effectively and in a spirit of partnership, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH supports people and societies worldwide in creating sustainable living conditions and building better futures. The services delivered by GIZ draw on a wealth of regional and technical competence and tried and tested management expertise. It is owned by the German Government and works in the field of international cooperation for sustainable development. GIZ is also engaged in international education work around the globe. It currently operates in more than 130 countries worldwide.
GIZ in IndiaGermany has been cooperating with India by providing expertise through GIZ for more than 50 years. To address India's priority of sustainable and inclusive growth, GIZ's joint efforts with the partners in India currently focus on the following areas:
• Energy- Renewable energy and energy efficiency
• Sustainable Urban and Industrial Development
• Natural Resource Management
• Private Sector Development
• Social Protection
• Financial Systems Development
• HIV/AIDS-Blood Safety
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